Who’s watching your back?

Name: Kumar Rajaratnam

Business: Backcare & Seating

Industry: Design

IP smart since: 1989

When Kumar Rajaratnam, founder and chief executive of Melbourne-based furniture company Backcare & Seating, wants to understand the value of his company’s intellectual property, he need look no further than the company’s Cpod ergonomic office chair, which won the 2007 Chicago Design Award.

Creating the chair took five years, several millions of dollars and engineering teams in six countries – and that’s before the manufacturing process even started. “That’s the real expensive part – there is millions of dollars in the tooling, the designs and the patents,” Rajaratnam says.

Given the substantial amount invested in IP, it’s not surprising that a good chunk of cash went to B&S’s legal team. “We were very, very careful to do our homework beforehand. A large proportion of the budget revolved around making sure we had intellectual property protection.”

But Rajaratnam says that while formal IP protection such as patent and design registrations and contractual arrangements are important, relationship management is a key plank of the company’s IP protection strategy.

Rajaratnam has a fascinating story and a unique business model.

The story starts back in the mid 1980s when, after years of study in physiotherapy, prosthetics and orthotics, he decided it was time to earn some money and get working. Rajaratnam did not want to work in a clinic setting, so he tried to get a job as pharmaceutical company rep.

“But as was explained to me at the time, their customers preferred to be able to pronounce the names of their rep,” he says, adding that Australia is a very different place today. “So the only thing to do was to go into business myself.”

He started B&S in 1989. The company initially sold its ergonomic furniture through its two retail stores before expanding its distribution to other dealers. The furniture is now sold in 200 stores across Australia (including the Corporate Express chain), but Australia only accounts for 10% of the company’s annual revenue. The rest comes from 15 main overseas markets, including the United States, Germany, France, Japan and Scandinavian countries Sweden, Finland and Denmark.

Rajaratnam knew his products would work well in a global market, but was not keen to invest in capital-intensive manufacturing operations. The solution he struck was to find partners in major markets who could manufacture under licence and pay royalties back to B&S.

The system works well. B&S is able to concentrate on research and development, while the local manufacturers are able to tweak the B&S designs to suit local markets. The Swedes, as the tallest people in the world, need a bit of extra height in their seats while the US market tends to need a little extra width.

But the global focus of B&S creates challenges from an IP protection point of view, with a need to get multiple jurisdictions. Rajaratnam says the company seeks formal protections where possible in Australia and overseas, particularly in the litigious US market.

Rather than pinching designs, one tactic regularly employed by American competitors is to accuse rivals of copying and then get an injunction preventing them from launching their new product. “We know that a lot of the big companies will say ‘that’s an interesting product, we’ll try and keep you out of the market with some legal actions’.”

About 12 years ago, a Canadian competitor tied B&S in what Rajaratnam describes as the company’s biggest IP battle. The matter was eventually settled out of court after the founder of the Canadian company died. Rajaratnam says the company’s formal IP protection helped it to some extent, but says the incident taught him that IP fights can always end up in costly litigation. “The idea is to get out of it as soon as possible and get on with your day-to-day business.”

Another IP challenge for B&S is protecting its IP when it is shared and used by such a big group of licensees. Rajaratnam says B&S has strong agreements in place with its licencees to protect the use of its IP, but he’s brutally honest about the value of those agreements.

“Our contracts are not worth the paper they are written on. If you want to go around it, you could. It’s all about the relationships.”

When choosing his licensing partners, Rajaratnam decided not to go into business with large companies, instead choosing fellow SMEs which would be prepared to support the growth of the business. He has developed strong personal relationships with the owners of those companies over the last decade and formed strong bonds. “We have a very honest relationship. They take a while to warm to the fact they have to pay royalties, but no-one likes paying commissions,” he jokes.

Rather than taking a defensive position on the matter IP – by, for example, only allowing licensees limited access to the company’s design process – Rajaratnam brings his licensees into the product-creation process.

“If you let them feel like they are part of the group, you get a better success rate,” he says. “Our objective is not to make as much money as possible. It’s to have successful relationships so that people will stick by you in good times and bad times.”

Related Links
IP Australia — www.ipaustralia.gov.au
Backcare & Seating — www.backcare.com.au

For more information download Design Victoria’s How to Kits

Make Your Mark – A guide to Intellectual Property for Australia’s Industrial Designers
Protect Your Creative – A guide to Intellectual Property for Australia’s Graphic Designers